- According to recent trades, the pound sterling fell by a third of a percent against the US dollar GBP/USD in mid-week trading, thanks to “hawkish” signals from members of the US Federal Reserve.
- As a result, the pound sterling’s losses extended to the support level of 1.2612, its lowest level in six weeks, before settling around the 1.2645 level at the time of writing and ahead of the announcement of a series of important US economic releases.
Commenting on the performance of the forex market, Martin Miller, market analyst at Reuters, says that the US dollar is strong and “could see significant gains in the coming days and weeks.” Accordingly, Miller says that the dollar index – a broader measure of the US dollar’s performance – is in a bullish technical position. Thus, this means that the pound exchange rate against the dollar GBP/USD faces further decline from the 1.2646 level, where it was trading at the time of writing. The euro fell by a similar margin to 1.0683 against the dollar.
The US dollar is ahead of potential euro-centric risks dominated by the weekend’s French elections that could push the European Central Bank to cut interest rates further in the coming days. Also, analysts say surprisingly strong Canadian and Australian inflation rates over the past 24 hours are raising concerns about a global inflation reboot, sending bond yields higher. Several Fed officials have warned that they will not rush to cut rates this year, adding to the pressure on bond markets and ultimately benefiting the US dollar.
“Fed officials are still hawkish,” said Dr. Win Thin, an expert at Brown Brothers Harriman. Moreover, the divergence in interest rate policy between the US (higher interest rates for longer) and the UK and the eurozone is supporting the dollar.
According to recent statements, Fed policymaker Michelle Bowman said, “We are still not at the point where it is appropriate to cut rates.” Added, “Given the risks and uncertainties surrounding my economic outlook, I will remain cautious in my approach to considering future changes in monetary policy.” Also, she revealed that she is one of several Fed policymakers who do not see any cuts this year, making her one of four Fed policymakers who believe interest rates will remain unchanged. According to the Fed’s June 12 forecasts, seven of her colleagues see one cut, and eight see two. Bowman added, “I remain prepared to raise the target range for the federal funds rate at a future meeting if inflation stalls or even reverses,”
For her part, Fed Chair Lisa DeKok was more accepting of a potential cut, saying, “With inflation well advanced and the labor market gradually cooling, it would be appropriate at some point to ease policy tightening to maintain a healthy balance in the economy.” She added that the timing of any such adjustment would depend on how economic data evolves and what it means for the economic outlook and the balance of risks. Concurrently, the market still sees November as the most likely meeting for a cut, although there is a 70% chance of a cut in September.
Technical forecasts for the GBP/USD pair today:
According to the performance on the daily attached, the GBP/USD price trend is still bearish and breaking the support at 1.2600 will strengthen the bears’ control over the trend. The next psychological support will be 1.2445, which may move the technical indicators towards strong overbought levels, which is an important buying area. On the other hand, and in the same time frame, there will be no break of the current downward channel without moving towards the resistance at 1.2775 again. Today, the GBP/USD pair will be affected by the announcement of the US GDP growth reading, the number of weekly jobless claims, and durable goods orders.
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